Question 1: When is it a better time to buy Starbucks stock - after a drop or after a rise?Answer:Consider two situations,Case 1: Starbucks stock drops by -5% or more in a monthCase 2: Starbucks stock rises by 5% or more in a month
SBUX stock fares better after Case 2, with a 62.4% chance of rise over the next month (21 trading days) under Case 1 (where the stock has suffered a 5% loss over the previous month), versus, a 68.4% chance of rise for Case 2. This would suggest that it is better to buy SBUX stock after a recent rise
Try the Trefis machine learning engine to see for yourself how Starbucks stock is likely to behave after any specific gain or loss over a period.
Question 2: Does Starbucks stock have a higher chance of rise after a steeper drop?Answer:Trefis machine learning engine's calculations show that for most stocks, the chance of rise reduces as the drop gets steeper. However, after unusually high declines of -10% or more, there is usually an improvement in the chance of rise. This makes sense intuitively, as markets often overreact to bad news around a company
For SBUX stock, the probability of positive returns over the next month (21 trading days) after a drop of N% over the last 21 trading days is detailed in the table below, along with the positive return probability for the S&P500:
Previous 21 days% DropNext 21 daysPositive Return ProbabilitySBUX S&P 500-1%55.7%71.1%-3%55.7%73.0%-5%62.4%72.7%-7.5%73.9%78.3%-10%81.9%78.4%
Question 3: What about Starbucks stock's chance of rise after a recent rally?
Answer:SBUX's probability of positive returns over the next month (21 trading days) after a gain of N% over the last 21 trading days is detailed in the table below, along with the positive return probability for the S&P500:
Previous 21 days% RiseNext 21 daysPositive Return ProbabilitySBUX S&P 500+1%68.9%67.8%+3%70.0%68.5%+5%68.4%67.0%+7.5%67.8%68.4%+10%61.4%74.2%